A diversification strategy is one that aims to increase growth by changing or expanding the products or services that your business offers. There are many ways to achieve this, so you will need to work out which will benefit your business the most.
How to finance diversification
When you diversify your business your market share will increase, and it will lead to higher sales and revenue figures.
However, in order to make this change you will need to invest a lot of money, time and energy initially. This will be spent on research of competitors and the market as well as the development and production of new products. If you are a service-based company, then you will spend money on new staff, training for existing staff and rebranding.
Some businesses do not have the finances to invest so much money at once. If this is the case, look into reputable loans for businesses to give you the capital you need to expand.
Horizontal diversification
Horizontal diversification is where a business acquires or develops new products or services that complement its core business. This strategy may require investment in new technology or manufacturing, so you will have to source that.
The main benefit of this strategy is that you are creating additions that your existing customers will likely love and purchase. For example, if you are a dog treat company, offering doggy ice cream will appeal to people who already buy their dog treats from you.
Concentric diversification
Concentric diversification is similar to horizontal diversification, but instead of adding products or services that appeal to your existing customers, you are targeting new ones. Although the products will be related to your initial lines, they do not have to match completely.
Using the dog treats business again, offering other accessories such as raincoats, leads and collars will complement the original lines but bring in a wider range of customers who don’t give their dogs as many treats or are not looking for treats initially when they are shopping.
Conglomerate diversification
Conglomerate diversification is when a business diversifies by acquiring a different company that is entirely unrelated to its original business. This is a high-risk strategy as it involves you entering an entirely new market and trying to sell to a completely new customer base.
One example of this would be the dog treats company opening a children’s clothing store. They would find there is very little crossover in customer bases, as well as needing to invest a great deal into manufacturing, marketing, new websites or premises and product research.
Vertical diversification is also known as vertical integration. This is when a company expands to incorporate something in the supply chain, usually manufacturing or distribution.
In this scenario, the dog treats manufacturer might open their own retail store, allowing them to sell their own products either online or in person.
